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ES Daily Plan | February 7, 2023
Daily is one time framing down, however, we are still trading above the FOMC breakout point indicating that buyers remain in control in the short term. The poor structure from 2/1 partially filled.
The ON session opened below the Smashlevel of 4141, which was actively defended by sellers for several periods during the Asian hours. We saw a very sluggish downward grind with a slightly faster pace after the opening of the European session, leading us to the poor structure highlighted from 2/1. In this area of poor structure, we knew that we have trapped sellers and we wanted to watch for any signs of responsive buying activity. The last intraday downside target 4105 was reached already during the ON session with a low of 4106.25. A solid bounce was observed from 4105 prior to the opening of the RTH session. However, the VIX was trading above 19.26, which means that it wasn’t an “A+ setup” reversal setup. If a long position was initiated, target expectations should be adjusted based on the ES/VIX correlation, which means that one can’t get greedy and expect an unrealistic move. Today, the ES/VIX correlation was interesting, so I will publish a separate recap of it on Substack.
The RTH session opened with a true gap down, which means that we opened completely outside of prior day’s range. A quick inventory correction occurred at the opening, but it was unable to fill the gap by a few handles. Partially filling the gap indicates weakness and can provide short opportunities. A very interesting sequence took place in B-period, where buyers were unable to make a new high, and VIX was simultaneously retesting 19.26, resistance that now acted as support. VIX bounced and the buying effort failed, resulting in a swift downward move that once again reached the last intraday downside target of 4105, where responsive buyers were once again present. VIX held above 19.26 throughout the session, which was noteworthy. Similar to the ON session, the bounce was solid, but failed to follow-through in the end. Again, adjust target expectations if ES and VIX aren’t aligned. During the sequence, the gap was filled, signaling that today's sellers weren’t particularly strong. Pay attention to the behavior of VIX during that sequence in the separate recap. The gap-fill (test of the prior 2 day balance low) was contextually a very good short-setup.
Today's session was highly balanced. Despite not being able to hold the true gap down and only partially filling the poor structure from 2/1, sellers managed to bring the daily into one time framing down mode by breaching the 2 day balance low. The last two sessions have lower highs and lower lows, but we are still trading above the FOMC breakout point, which suggests that buyers are in control in the short term. If buyers manage to end the daily one time framing down by breaching 4136.50, there is potential for short-covering, which means that I would be cautious on the short-side. The main focus still remains on the double distribution from 2/1, where sellers want to establish acceptance back within the lower distribution. The 5 day VPOC shifted to 4125.
Going into tomorrow's session, I will observe 4132.
Break and hold above 4132 would target 4141 / 4160 / 4175.
Holding below 4132 would target 4115 / 4105 / 4090 / 4075.
Additionally, pay attention to the following VIX levels: 20.40 and 18.45. These levels can provide confirmation of strength or weakness.
Break and hold above 4175 with VIX below 18.45 would confirm strength.
Break and hold below 4075 with VIX above 20.40 would confirm weakness.
Overall, it's important to exercise caution when trading outside of the highlighted yellow levels. A non-cooperative VIX may suggest possible reversals i.e trade setups.
Be sure to check out the Weekly Plan, which provides a broader perspective and highlights significant levels of interest to watch in the coming week.
Disclaimer: Futures and options trading involves a high level of risk, with the potential for substantial losses. The information provided in this newsletter is for informational purposes only and is not intended to be a trade recommendation. It is the responsibility of the reader to make their own investment decisions and they should seek the advice of a qualified securities professional before making any investments. The owners/authors of this newsletter are not certified as registered financial professionals or investment advisers.
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